I think there's "merit" to it, in that the logic holds: if we restrict the apps in an app store to be selected by a trusted entity then we can more likely trust the app. This computes, I think it's reasonable enough logic, but we could extend this further to something farcical too: I could make my phone "unhackable" and "more secure" by throwing it into a wood chipper. It would be impossible to hack, there's virtually no chance of my personal details leaking because of it, but of course I lose access to features of the phone (or in this case the entire phone itself). A corporation (or any large entity) will always be able to justify a restriction as a means of "increased security". Security vulnerabilities will almost always come from being able to actually use a computer as a computer.

This wouldn't inherently be a problem if it weren't for the fact that there are plenty of things things that are perfectly legal, but Apple won't approve, presumably out of fears of legal headaches, like video game console emulators.

My "solution" to approximate something decent would be to do something more or less akin to what macOS does. By default, don't allow any sideloading and only allow things to be installed via the App Store. If one would like to install something outside of the app store, they must (on a per-app basis) go into the security settings and allow things. This would still give preferential treatment to the App Store, but would allow people who know what they're doing to go around this.

NOTE: I'm aware of the self-signing AltStore thing, and it's definitely a step in the right direction, if still a bigger pain in the ass than it should be.

However, when you force companies to only signup and accept payment through your payment gateway instead of giving customers the option, and then unequally applying rules and colluding with other companies you start to get in trouble in regards to monopolistic practices.

Trust and security don't mean much when apps have unfettered internet access. You cannot find who the app is contacting, how often and what is sent. You also have no ability to filter or block the contact. *

* there are minor hacks.

Also, that has absolutely nothing to do with banning third party payment processors for IAPs. That is just criminal, or well, it should be.

App review is meant to enforce Apple's payment rules as much as anything. They don't and can't catch everything.

Strong sandboxing, granular permissions, and remote kill switch (that can be disabled) can do effectively the same job. It just won't earn Apple gobs of racketeering money.